Enhancements to Tax Programs to Benefit Seniors, Low Income and Small Business

Since 2006, the Provincial Government has decreased taxes, putting hundreds of millions of dollars back into the hands of Newfoundlanders and Labradorians annually. This year, savings to residents is approximately $600 million. Budget 2014 also includes further enhancements that will see more money put back into the hands of seniors, individuals with low incomes and small businesses in the province.

Enhancing the Low-Income Seniors’ Benefit
Budget 2014 includes an increase, beyond the increase for annual indexation, to the Low-Income Seniors’ Benefit. This is the fourth time the benefit has been increased by the Provincial Government since 2003. As a result, the maximum payment seniors will receive in October 2014 will be the highest ever at $1,036, up from $971 in 2013. Approximately 42,000 seniors will benefit from the program this year.

The Newfoundland and Labrador Low-Income Seniors’ Benefit is a refundable tax credit for low income seniors who are at least 65 years old at any time during the tax year. The benefit is paid automatically and is based on family net income from the previous year.

In 2014, the $40.4 million budget for the program is more than five times higher than the $7.5 million budget in 2003. The maximum payment provided under the program in 2003 was $350 for single seniors. That amount has increased by 196 per cent to $1,036. The amount for senior couples in 2003 was $700. That amount has increased by 48 per cent to $1,036.

Maintaining Lowest Personal Income Tax Rates in Atlantic Canada
Newfoundland and Labrador continues to maintain the lowest Personal Income Tax rates in Atlantic Canada. Total personal income tax reductions since 2006 are estimated to have returned approximately $2 billion back to taxpayers in the province, funding that has continued to encourage economic growth.

Tax Reductions/Seniors’ Benefit Enhancements since 2006

Type of Taxpayer

Annual Income

Amount of Tax Paid in 2006

Amount of Tax Paid in 2014

Annual Savings to taxpayer

Increase in Seniors’ Benefit Since 2006

Total Annual Savings to Taxpayer

Single Individual

$50,000

$5,364

$3,698

$1,666

$1,666

One Earner Family

$75,000

$9,058

$6,325

$2,732

$2,732

Single Senior

$20,000

$963

$7

$955

$950

$1,905

Low-Income Tax Reduction
Effective for the 2014 taxation year, the Low-Income Tax Reduction income thresholds will be increased from $17,547 to $18,547 for individuals and from $29,362 to $31,362 for families. Consequently, the credit will eliminate provincial income tax for individuals with net income up to $18,547 and for families with net income up to $31,362. Partial tax reductions will be received by individuals with net income up to $22,815 and for families with net income up to $38,006.

These changes will cost approximately $4.5 million annually, bringing the total estimated cost of the Low-Income Tax Reduction to approximately $11.1 million. This is the third time the Provincial Government has enhanced the program since 2006. The Low-Income Tax Reduction was first introduced by the Provincial Government in 2005 as a way to assist individuals who are earning minimum wage and striving to improve their financial situation.

Individuals

Net Income

2014 Benefit (Before Change)

2014 Benefit (After Change)

Incremental Savings

$18,000

$540

$644

$105

$19,000

$380

$611

$231

$20,000

$220

$451

$231

$21,000

$60

$291

$231

$22,000

$0

$131

$131

Families

Family Net Income

2014 Benefit (Before Change)

2014 Benefit (After Change)

Incremental Savings

$30,000

$818

$965

$147

$31,000

$658

$1,037

$379

$32,000

$498

$961

$463

$33,000

$338

$801

$463

$34,000

$178

$641

$463

$35,000

$18

$481

$463

$36,000

$0

$321

$321

$37,000

$0

$161

$161

Lowering Small Business Tax
In an effort to further strengthen a competitive tax environment for small businesses in the province, effective July 1, 2014, the Provincial Government will decrease the small business corporate income tax rate to three per cent. As a result, this province’s small business tax rate will be tied with Nova Scotia for the lowest rate in Atlantic Canada. This initiative will put $4.5 million annually back into the hands of approximately 6,000 small businesses in the province.

The reduction in the small business tax rate complements other changes made by the Provincial Government in recent years to support small business. The province has raised the income threshold four times since 2003, from $225,000 up to the current threshold of $500,000.

Small Business Corporate Income Tax Rates in Atlantic Canada

NL

NS

NB

PE

3%

3%

4.5%

4.5%

Integration of Dividend Tax Credit
In order to ensure proper integration of the corporate and personal income tax systems and to be consistent with changes made by the Federal Government, effective July 1, 2014, the Provincial Government will reduce the dividend tax credit rate for non-eligible dividends from five per cent to 4.1 per cent, and reduce the dividend tax credit rate for eligible dividends from 11 per cent to 5.4 per cent.

Dividends are paid from a corporation’s after tax income, and are taxed again in the hands of the recipient. The Dividend Tax Credit relieves some of this double taxation. This change will restore integration for non-eligible dividends and will also ensure that the effective tax rate on eligible dividends is equivalent to the effective tax rate on non-eligible dividends.

Increase in Tobacco Tax
Budget 2014 brings an increase in the tax for both cigarettes and fine-cut tobacco. Effective 12:01 a.m. March 28, 2014, the tax will increase by three cents per cigarette and by six cents per gram on fine-cut tobacco. This will result in increased revenues of approximately $17 million. The Provincial Government is committed to improving the health and wellness of all Newfoundlanders and Labradorians. Providing options and additional help to stop smoking will lead to the long-term improvement of health outcomes. As outlined in the Backgrounder: Investments to Increase and Enhance Long-Term Care, Cancer Treatment and Seniors Programming, Budget 2014 will allocate $712,000 to subsidize smoking cessation products for people living on low incomes.

Wholesalers and retailers should adjust their price effective with the coming into force of the tax increase. An inventory must be completed, and tobacco tax is required to be remitted to the Department of Finance on the inventory at the rate of $6 per carton of cigarettes, and $6 for each 100 grams of tobacco.